2 Disclosure Statement Supplements1.q4cdn.com/880135780/files/doc_downloads/2020/03/... · Affects...

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Exhibit A

Disclosure Statement Supplement

Case: 19-30088 Doc# 6483-1 Filed: 03/25/20 Entered: 03/25/20 16:02:51 of 21

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WEIL, GOTSHAL & MANGES LLP Stephen Karotkin (pro hac vice) ([email protected]) Ray C. Schrock, P.C. (pro hac vice) ([email protected]) Jessica Liou (pro hac vice) ([email protected]) Matthew Goren (pro hac vice) ([email protected]) 767 Fifth Avenue New York, NY 10153-0119 Tel: 212 310 8000 Fax: 212 310 8007 KELLER BENVENUTTI KIM LLP Tobias S. Keller (#151445) ([email protected]) Jane Kim (#298192) ([email protected]) 650 California Street, Suite 1900 San Francisco, CA 94108 Tel: 415 496 6723 Fax: 650 636 9251 Attorneys for Debtors and Debtors in Possession

JONES DAY Bruce S. Bennett (SBN 105430) ([email protected]) Joshua M. Mester (SBN 194783) ([email protected]) James O. Johnston (SBN 167330) ([email protected]) 555 South Flower Street Fiftieth Floor Los Angeles, CA 90071-2300 Tel: 213 489 3939 Fax: 213 243 2539 Attorneys for Shareholder Proponents

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re: PG&E CORPORATION,

- and -

PACIFIC GAS AND ELECTRIC COMPANY,

Bankruptcy Case No. 19-30088 (DM) Chapter 11 (Lead Case) (Jointly Administered) SUPPLEMENT TO DISCLOSURE STATEMENT FOR DEBTORS’ AND SHAREHOLDER PROPONENTS’ JOINT CHAPTER 11 PLAN OF REORGANIZATION [Related Dkt. No. 6353]

Debtors.

Affects PG&E Corporation Affects Pacific Gas and Electric Company Affects both Debtors * All papers shall be filed in the Lead Case, No. 19-30088 (DM)


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ON MARCH 17, 2020, THE BANKRUPTCY COURT APPROVED THE DISCLOSURE STATEMENT FOR DEBTORS’ AND SHAREHOLDER PROPONENTS’ JOINT CHAPTER 11 PLAN OF REORGANIZATION (THE SOLICITATION VERSION OF WHICH IS FILED AT DOCKET NO. 6353, TOGETHER WITH ALL SCHEDULES AND EXHIBITS THERETO, AND AS MAY BE MODIFIED, AMENDED, OR SUPPLEMENTED FROM TIME TO TIME, THE “DISCLOSURE STATEMENT”).1

THE FOLLOWING INFORMATION RELATES TO CERTAIN EVENTS THAT OCCURRED AFTER THE APPROVAL OF THE DISCLOSURE STATEMENT AND SUPPLEMENTS THE DISCLOSURE STATEMENT. ALL CREDITORS AND HOLDERS OF EQUITY INTERESTS ARE ENCOURAGED TO READ THIS SUPPLEMENT, THE DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY.

A. Governor’s Letter Regarding Compliance with Wildfire Legislation and Recent Motion Filed with the Bankruptcy Court

As set forth in Section III.B of the Disclosure Statement, on December 13, 2019, Governor Gavin

Newsom (the “Governor” and his office, the “Governor’s Office”) sent a letter [Docket No. 5138]

(the “December 13 Letter”) to the Utility’s management stating, among other things, that the Governor

believed that the draft Debtors’ and Shareholder Proponents’ Joint Chapter 11 Plan of Reorganization

shared on December 6, 2019 with the Governor’s Office (the “December 6 Plan”) did not comply with

AB 1054. The Governor’s December 13 Letter set forth a number of governance and management

requirements that the Governor believed were necessary to comply with AB 1054. The Governor’s

December 13 Letter further stated that the capital structure set forth in the December 6 Plan would

contribute to a reorganized company that, in the Governor’s view, would not be positioned to provide

safe, reliable, and affordable electric service. The Disclosure Statement further states that the Debtors

and the Governor’s Office have been in continuing discussions as to these matters.

As previously disclosed, in response to the concerns raised by the Governor, the Debtors have

committed to a number of changes in connection with the Plan regarding governance, operations and

financial structure, together designed to prioritize safety and expedite the Debtors’ successful emergence

from chapter 11.

In addition, on March 20, 2020 the Debtors filed a motion [Docket No. 6398] (the “CRCP

1 Unless otherwise defined, capitalized terms used herein have the meanings given to such terms in the Disclosure Statement.


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Motion”) with the Bankruptcy Court for entry of an order approving a case resolution contingency

process to address the circumstance in which the Plan is not confirmed or the Plan fails to go effective

in accordance with certain required dates (the “Case Resolution Contingency Process”). As further

described in the CRCP Motion, the Case Resolution Contingency Process contemplates a process for

the sale of PG&E Corporation or the Utility in the event that the Plan is not confirmed or the Plan fails

to go effective in accordance with certain required dates, including the appointment of a Chief

Restructuring Officer to manage such process. The Case Resolution Contingency Process also

contemplates an operational observer selected by the state of California.

In addition, the CRCP Motion describes certain other commitments that the Debtors have agreed

to undertake in connection with the confirmation process and implementation of the Plan (the “Other

Commitments”). The Other Commitments (which are described in more detail below) include, among

other things, a limitation on the ability of Reorganized PG&E Corporation to pay dividends over a period

of time after emergence from chapter 11; commitments by the Utility with respect to cost recovery of

amounts paid in respect of “Fire Claims” under the Plan; the terms of a purchase option in favor of the

state of California (which would be exercisable only in limited circumstances); and commitments with

respect to the Utility’s utilization of wildfire-related net operating losses.

Also on March 20, 2020, counsel for the Governor filed a statement with the Bankruptcy Court

in support of the CRCP Motion [Docket No. 6402] (the “Governor’s Statement”). The Governor’s

Statement indicates that entry of an order approving the CRCP Motion is a critical component of the

Governor’s willingness to support the Plan and that, in the Governor’s view, the relief requested in the

CRCP Motion responds to the Governor’s previously stated concerns. In the Governor’s Statement, the

Governor further stated that a rate-neutral securitization transaction pursuant to Senate Bill 901 that

meets all legal requirements as determined by the California Public Utilities Commission (“CPUC”)

would, in the Governor’s judgment, be in the public interest, as it would strengthen the going-forward

business and support the reorganized Utility’s ability to provide safe, reliable, affordable and clean

energy to its customers. The Governor’s Statement also indicates that the Governor believes that if the

CRCP Motion is granted and the CPUC approves the Plan with the governance, financial and operational


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provisions submitted to the CPUC by the Utility or otherwise agreed by the Utility, with any

modifications the CPUC believes appropriate or necessary, the Plan will, in the Governor’s judgment,

be compliant with Assembly Bill 1054.

A hearing in the Bankruptcy Court to consider approval of the CRCP Motion is currently

scheduled for April 7, 2020.

A summary of the terms and provisions of the Case Resolution Contingency Process is set forth

in detail in the CRCP Motion, which can be viewed for free at the website maintained by the Debtors in

the Chapter 11 Cases at https://restructuring.primeclerk.com/pge/ (the “Case Website”). A summary

of the Other Commitments is set forth below. Capitalized terms used in the following section, but not

defined herein or in the Disclosure Statement have the meanings given to them in the CRCP Motion.

The Other Commitments. In connection with and subject to the approval of the Case Resolution

Contingency Process, the Governor’s Office’s support for the Plan and the Securitization (as defined

below), and the occurrence of the Effective Date, the Debtors have agreed to certain other matters as

follows:

a) Dividend Restriction. Reorganized HoldCo (Reorganized PG&E Corporation) will not pay common dividends until it has recognized $6.2 billion in non-GAAP Core Earnings following the Plan Effective Date. That amount would be deployed as capital investment or reduction in debt. “Non-GAAP Core Earnings” means GAAP earnings adjusted for those non-core items identified in the Disclosure Statement;2

b) Fire Victim Claims Costs. The Reorganized Utility (Reorganized Pacific Gas and Electric Company) intends to file an application with the CPUC for approval of a single post-emergence 30-year securitization transaction of approximately $7.5 billion (the “Securitization”). If the CPUC does not grant approval of the Securitization, the Reorganized Utility will not seek to recover in rates any portion of the amounts paid in respect of “Fire Claims” under the Plan; and

c) Net Operating Losses. The Debtors’ payment of wildfire claims under the Plan are expected to result in substantial net operating losses (“NOLs”). Consistent with the Debtors’ financial projections provided in the Disclosure Statement, the Reorganized Utility will use cash flows generated by application of these NOLs in future years in connection with the Securitization. If this Securitization is not approved or

2 See Disclosure Statement, Exhibit B, p. 168 [Docket No. 6353]. The non-core items identified in the Disclosure Statement are Bankruptcy and Legal Costs; Investigation Remedies and Delayed Cost Recovery; GT&S Capital Audit; Amortization of Wildfire Insurance Fund Contribution; and Net Securitization Inception Charge. Id. at 174


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consummated, the Reorganized Utility will use these cash flows to amortize the $6 billion in Temporary Utility Debt that is part of the Debtors’ exit financing under the Plan.

Post Plan Effective Date Purchase Option in Favor of State of California.

The Other Commitments also include a post Plan Effective Date purchase option in favor of the

state of California as follows:

• On February 18, 2020, in the proceedings before the CPUC related to approval of the Plan, the Assigned Commissioner issued a ruling that set forth various proposals. One such proposal was an Enhanced Regulatory Reporting and Enforcement Process (“Enhanced Regulatory Process”) that includes six steps to be implemented over an extended period of time which could, under certain circumstances, culminate in a review and potential revocation of the Reorganized Utility’s certificate of public convenience and necessity (“CPCN”), i.e., its license to operate as a public utility. The Debtors agree that if the CPUC revokes the CPCN through the Enhanced Regulatory Process, the state of California will have the option to purchase all of the issued and outstanding equity interests of the Reorganized Utility (including common stock and any options or other equity awards issued or granted by the Reorganized Utility), directly or via a state-designated entity, at an aggregate price to the holders of such equity interests equal to (i) the estimated one-year forward income computed by reference to rate base times equity ratio times return on equity (in each case as authorized by the CPUC and Federal Energy Regulatory Commission), multiplied by (ii) the average one-year forward price to earnings ratio of the utilities then comprising the Philadelphia Utilities Index (“PHLX”), multiplied by (iii) 0.65.

The Debtors also have agreed, subject to the approval of the CRCP Motion and the Governor’s

Office’s support for the Plan and the Securitization, to the following: • As a condition to the occurrence of the Effective Date, the secured debt to be issued in

connection with the funding of the Plan must receive an investment grade rating from at least one of Standard & Poor’s or Moody’s on the Effective Date. This condition may be waived with the consent solely of the Plan Proponents and the Governor’s Office; and

• The Plan Documents (as defined in the Plan), including the documents included in the Plan Supplement (as defined in the Plan) and any amendments to the Plan must be in form and substance acceptable to the Governor’s Office.

B. Butte County District Attorney Investigation and potential Claims

As set forth in Section II.C.2 of the Disclosure Statement, the Butte County District Attorney’s

Office (the “Butte County DA”) and the California Attorney General’s Office opened a criminal

investigation of the November 8, 2018 Camp fire (the “Camp Fire”). The Disclosure Statement further

discloses that potential criminal charges that could be filed against the Debtors and current or former


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employees with respect to the Camp Fire include recklessly causing a fire, manslaughter, and related

environmental charges. The Debtors could be subject to material fines, penalties, or restitution orders

if it is determined that the Debtors failed to comply with applicable laws and regulations in connection

with the Camp Fire, as well as non-monetary remedies such as oversight requirements. If the Debtors

were found criminally liable, the Debtors could also be liable for claims of restitution on behalf of certain

Fire Victims under the California Penal Code. The Debtors believe that any claims for such restitution

would constitute Fire Victim Claims and under the Plan would be satisfied solely out of the Fire Victim

Trust.

Pursuant to a Motion filed with the Bankruptcy Court on March 23, 2020 [Docket No. 6418]

(the “Butte County Motion”), the Debtors are seeking approval of a Plea Agreement and Settlement

with the People of the State of California (the “People”), represented by the Butte County DA

(the “Butte County Agreement”), that resolves the criminal prosecution and investigation of the Utility

arising from the Camp Fire. The Butte County Motion and any related pleadings can be viewed for free

on the Case Website. The principal terms of the Butte County Agreement, which are more fully set

forth in the Butte County Motion, are as follows:

1. The Utility agrees to plead guilty to 84 counts of involuntary manslaughter and one count of unlawfully causing a fire;

2. The Utility will be sentenced to pay the maximum total fine and penalty of not more than $3,486,950.00. The Utility will also pay $500,000.00 to reimburse costs spent on the investigation of the Camp Fire;

3. Upon approval and acceptance of the Butte County Agreement by the Butte County Superior Court and the Bankruptcy Court, the People, by and through the Butte County DA, agree not to prosecute any criminal charges relating to the Camp Fire against the Debtors or Reorganized Debtors;

4. The Butte County Agreement will be in full and final satisfaction, release and discharge of the proofs of claim filed by the People, through the Butte County DA, in the Chapter 11 Cases;

5. The People, by and through the Butte County DA, agree not to oppose any effort by the Utility to seek the discharge of claims for restitution pursuant to Cal. Penal Code § 1202.4 in the Chapter 11 Cases made on the grounds that such claims are satisfied pursuant to the agreements referenced in the Butte County Agreement and the Plan; and

6. The Utility will be entitled to withdraw the plea if: (i) the Butte County Agreement is not approved by the Butte County Superior Court; (ii) any obligation, including fines,


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penalties, assessments, obligations to pay restitution in addition to the settlements described in the Butte County Agreement are imposed on the Utility; or (iii) the Butte County Agreement is not approved by the Bankruptcy Court, or the Plan is not confirmed by June 30, 2020 or does not become effective in accordance with its terms. If the plea is withdrawn by the Utility, the indictment shall remain.

The Debtors believe the Plan is clear that the fine and penalty set forth above is a Fire Victim Claim to

be paid from the Fire Victim Trust. The Tort Claimants Committee has advised the Debtors that they

disagree and assert that such fine and penalty is not to be paid from the Fire Victim Trust.

Simultaneous with entry into the Butte County Agreement, but separate from such Butte County

Agreement, the Utility has committed to spend up to $15 million over five years to provide water to

Butte County residents impacted by damage to the Utility’s Miocene Canal caused by the Camp Fire.

In addition, the Utility has separately consented to the Butte County DA consulting, sharing information

with and receiving information from the monitor overseeing the Utility’s probation related to the San

Bruno explosion through the expiration of the Utility’s term of probation, and in no event until later than

January 31, 2022. This consent is subject to the approval of the federal court overseeing the Utility’s

probation and the monitor.

A hearing on the Butte County Motion is currently scheduled for April 14, 2020 in the

Bankruptcy Court.

C. Financial Projections

Attached hereto as Exhibit A are updated financial projections that reflect, among other things,

the information set forth above.


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Dated: San Francisco March [●], 2020

Respectfully submitted,

PG&E CORPORATION

By: Name: Jason P. Wells Title: Executive Vice President and Chief Financial

Officer

PACIFIC GAS AND ELECTRIC COMPANY

By: Name: David S. Thomason Title: Vice President, Chief Financial Officer and

Controller

SHAREHOLDER PROPONENTS

By:


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Exhibit A

Updated Financial Projections


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Exhibit B to Disclosure Statement

Financial Projections

Introduction1

The following income and cash flow statements for the annual periods from January 1, 2020 through December 31, 2024 (the “Projection Period”) and the balance sheet as of the end of the year for each of the years 2020 through 2024 for the Debtors (“Consolidated Financial Projections”) are based on forecasts of operating results during the five-year period ending December 31, 2024. Included below is a summary of key assumptions to the Consolidated Financial Projections (in each case, the “Assumptions”). The Consolidated Financial Projections and the Assumptions should be read in conjunction with the Plan and the Disclosure Statement.

The Debtors, with the assistance of their advisors, have prepared these Consolidated Financial Projections to assist the Bankruptcy Court in determining whether the Plan meets the feasibility test of section 1129(a)(11) of the Bankruptcy Code.

Other than limited information related to rate base and capital expenditures, the Debtors generally do not publish their projections or their anticipated financial position or results of operations. Accordingly, the Debtors do not anticipate that they will, and disclaim any obligation to, furnish updated projections to holders of Claims or Interests, or to include such information in documents required to be filed with the U.S. Securities and Exchange Commission (the “SEC”) or otherwise make public such information.

The Consolidated Financial Projections have been prepared by the management of the Debtors, in consultation with the Debtors’ financial and restructuring advisors, Lazard Freres & Co. LLC and AP Services, LLC. The Consolidated Financial Projections were not prepared to comply with the guidelines for prospective financial statements published by the American Institute of Certified Public Accountants or the rules and regulations of the SEC, and by their nature are not financial statements prepared in accordance with accounting principles generally accepted in the United States of America. The Debtors’ independent accountants have neither examined nor compiled the accompanying Consolidated Financial Projections and accordingly do not express an opinion or any other form of assurance with respect to the Consolidated Financial Projections, assume no responsibility for the Consolidated Financial Projections and disclaim any association with the Consolidated Financial Projections. The Consolidated Financial Projections do not reflect the impact of fresh start reporting in accordance with American Institute of Certified Public Accountants statement of position 90-7, financial reporting by entities in reorganization under the Bankruptcy Code. The Debtors do not expect to be subject to fresh start reporting at or following the Effective Date. The Consolidated Financial Projections contain forward-looking statements that are not historical facts, including statements about the beliefs, expectations, estimates, future plans and strategies of the Debtors, as well as forecasts based on our Plan which reflects settlements reached with various parties regarding settlement of liabilities in connection with the 2018 Camp fire, 2017 Northern California wildfires and the 2015 Butte fire, the confirmation of the Plan on the Effective Date, the continuing availability of sufficient borrowing capacity or other financing to fund operations, the Utility’s participation in the

1 Capitalized terms used but not otherwise defined herein have the meanings given to such terms in the Disclosure Statement to which this Appendix is attached.


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statewide wildfire fund created by AB 1054, the Debtors’ anticipated sources and uses upon emergence from Chapter 11, the outcome of regulatory cases and the effect on earnings of such cases, projections of wildfire-related expenditures, anticipated regulatory and legislative policy, anticipated capital expenditures of the Debtors, anticipated costs of operations of the Debtors, efficiency initiatives, dividend payments (both Utility preferred stock and PG&E Corporation common stock), credit ratings, securitization transactions and the various assumptions described in detail below. These statements are based on current expectations and assumptions, which management believes are reasonable, and on information currently available to management, but are necessarily subject to various risks and uncertainties. In addition to the risk that these assumptions prove to be inaccurate, factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include factors disclosed in PG&E Corporation’s and the Utility’s annual report on Form 10-K for the year ended December 31, 2019 and other reports filed with the SEC, which are available on PG&E Corporation’s website at www.pgecorp.com and on the SEC website at www.sec.gov. Additional factors include, but are not limited to, those associated with the Chapter 11 cases of PG&E Corporation and the Utility that commenced on January 29, 2019. PG&E Corporation and the Utility undertake no obligation to publicly update or revise any forward-looking statements, whether due to new information, future events or otherwise, except to the extent required by law. The Consolidated Financial Projections, while presented with numerical specificity, are necessarily based on a variety of estimates and assumptions which, though considered reasonable by the Debtors, may not be realized and are inherently subject to significant business, economic, competitive, industry, regulatory, market and financial uncertainties and contingencies, many of which are beyond the control of the Debtors. The Debtors caution that no representations can be made or are made as to the accuracy of the Consolidated Financial Projections or to the Debtors’ ability to achieve the projected results. Some assumptions inevitably will be incorrect. Moreover, events and circumstances occurring subsequent to the date on which these Consolidated Financial Projections were prepared may be different from those assumed, or, alternatively, may have been unanticipated, and thus the occurrence of these events may affect financial results in a materially adverse or materially beneficial manner. The Debtors do not intend and do not undertake any obligation to update or otherwise revise the Consolidated Financial Projections to reflect events or circumstances existing or arising after the date of these Consolidated Financial Projections. Therefore, the Consolidated Financial Projections may not be relied upon as a guarantee or other assurance of the actual results that will occur. In deciding whether to vote to accept or reject the Plan, holders of Claims and Interests must make their own determinations as to the reasonableness of such assumptions and the reliability of the Consolidated Financial Projections. These Consolidated Financial Projections were developed for purposes of the formulation and negotiation of the Plan and to enable the holders of Claims and Interests entitled to vote under the Plan to make an informed judgment about the Plan and should not be used or relied upon for any other purpose, including the purchase or sale of securities of, or Claims or Interests in, the Debtors or any of their affiliates. Use of Non-GAAP Financial Measures The Consolidated Financial Projections contain financial information based on “Non-GAAP Core Earnings” in order to provide a measure that allows investors to compare the underlying financial performance of the business from one period to another, exclusive of non-core items. “Non-GAAP Core Earnings” is a non-GAAP financial measure and is calculated as income available for common shareholders less non-core items. “Non-core items” includes items that management does not consider representative of ongoing earnings and affect comparability of financial results between periods. The Debtors use Non-GAAP Core Earnings to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short- and long-term operating


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planning, and employee incentive compensation. The Debtors believe that Non-GAAP Core Earnings provides additional insight into the underlying trends of the business, allowing for a better comparison against historical results and expectations for future performance. Non-GAAP Core Earnings is not a substitute or alternative for GAAP measures such as consolidated income available for common shareholders and may not be comparable to similarly titled measures used by other companies. Select Assumptions for PG&E’s Financial Forecast 2020-2024 The Consolidated Financial Projections contained herein are based on, but not limited to, factors such as general business, economic, competitive, regulatory, market, financial and environmental conditions, as well as the assumptions detailed below. Many of these factors and assumptions are beyond the control of the Debtors and do not take into account the uncertainty and disruptions of business that may accompany an in-court restructuring. Accordingly, the assumptions should be reviewed in conjunction with a review of the risk factors set forth in the Disclosure Statement and in the Debtors’ public filings. General Assumptions

• In light of the forms of distribution contemplated by the Plan (which include cash as well as new PG&E Corporation common stock and the new debt securities of the Utility), the Consolidated Financial Projections were developed on a consolidated basis rather than on a separate legal entity basis. The Consolidated Financial Projections were developed by management with the assistance of the Debtors’ advisors and are presented solely for purposes of the formulation and negotiation of the Plan in order to present the anticipated impact of the Plan. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness, or reliability of the information, opinions, or conclusions expressed herein.

• The Consolidated Financial Projections assume that the Plan will be consummated in accordance with its terms and that all transactions contemplated by the Plan will be consummated on June 30, 2020.

• The Consolidated Financial Projections assume that the Utility secures an investment grade rating from at least one rating agency on the secured debt of the Utility.

• The Consolidated Financial Projections assume the achievement of various efficiency initiatives, including, among other things, resource planning, contract management, monetization of excess renewable energy, and real estate optimizations. These efficiency initiatives reduce operating and capital expenditures by approximately $1 billion on average through 2024.

• The Consolidated Financial Projections also assume that: (1) there will be no material change in legislation or regulations, or the administration thereof, that would have an unexpected effect on the operations of the Debtors; and (2) there will be no change in generally accepted accounting principles in the United States that would have a material effect on the reported financial results of the Debtors.

• The Consolidated Financial Projections do not reflect the impact of any actual or expected business disruptions relating to the worldwide health crisis due to COVID-19.

Assumptions Underlying Revenue Projections and Cost Recovery Base Revenue The Consolidated Financial Projections assume:

• Base revenues for electric distribution, natural gas distribution and electric generation operations are consistent with the Utility’s proposed settlement agreement (the “2020 GRC Settlement”)


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filed on December 20, 2019 with the California Public Utility Commission (“CPUC”) in its 2020 General Rate Case (“GRC”) for 2020-2022. Spending for wildfire-related programs included in the 2020 GRC Settlement associated with system hardening, vegetation management, public safety power shutoffs and excess liability insurance, is anticipated to be well above amounts specified, and this incremental spending is recoverable through balancing accounts up to a two-year lag. Base revenue for the years 2023 and 2024 assumes an increase in authorized annual revenue requirement sufficient to cover the forecasted GRC costs and authorized rate of return.

• Formula rates for the recovery of costs for electric transmission facilities are determined by the Transmission Owner (“TO”) rate cases with the Federal Energy Regulatory Commission (“FERC”). Under the formula rate mechanism, transmission revenues are updated to the actual cost of service annually. All prudently incurred transmission wildfire-related costs are assumed to be fully recoverable consistent with the formula rate mechanism.

• Base revenues for the Utility’s natural gas transmission and storage services are consistent with the final decision issued in the Utility’s 2019 gas transmission and storage (“GT&S”) case, as approved by the CPUC on September 12, 2019 for 2019-2022. Base revenue for the years 2023 and 2024 assumes an increase in the authorized GT&S annual revenue requirement sufficient to cover forecasted expenses, except for amounts not recoverable. Aggregate GT&S capital expenditures of $576 million over the years 2011 through 2014 (the “GT&S Expenditures”) that are currently subject to audit by the CPUC are assumed to be approved by the CPUC and restored to the Utility’s rate base in 2020. Restoration of the GT&S Expenditures is subject to a subsequent CPUC proceeding following the audit. The CPUC has advised the Utility that litigation in respect of such proceeding will likely commence in the second half of 2020 with resolution occurring in 2021. The impact of this delay may result in a shift of the associated earnings available for common stock from 2020 to 2021 and a potential delay in associated cost recovery.

• Base operating and maintenance expenses excluding wildfire-related costs are forecast to be generally in line with the Utility’s settlements and final decisions in its rate cases, including those described above.

Incremental Wildfire-Related and Other Costs The Consolidated Financial Projections assume full recovery of wildfire-related costs currently deferred as regulatory assets on the balance sheet and additional future spending beyond the programs included in the 2020 GRC Settlement:

• Full recovery over the Projection Period of approximately $2.5 billion of costs related to restoration, prevention, and insurance that are on the Utility’s balance sheet as deferred costs as of December 31, 2019. Interim rate relief and accelerated recovery will be granted by the CPUC allowing approximately $1.4 billion of these costs to be recovered in 2020 and 2021 on an accelerated basis.

• Consistent with the Utility’s settlement agreement in the Order Instituting Investigation into the 2017 Northern California Wildfires and the 2018 Camp Fire (the “Wildfire OII”) submitted to the CPUC on December 17, 2019, the Utility will receive no recovery of costs totaling approximately $1.675 billion contemplated by the Wildfires OII settlement relating to certain wildfire-related costs and shareholder-funded system enhancement initiatives. On February 27, 2020, a Presiding Officer’s Decision (POD) was issued in the Wildfire OII proceeding which proposes modifications to the settlement agreement (as so modified, the “Revised Settlement”) that would add $462 million of disallowances for wildfire mitigation ($198 million) and system enhancement initiatives ($64 million), and a payment to the state general fund ($200 million). The Revised Settlement, if accepted, is subject to Bankruptcy Court approval. PG&E has filed an appeal. The impact of the modifications to the settlement proposed by the POD is not reflected in the


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Consolidated Financial Projections. The impact of the modifications to the settlement proposed by the POD on the Consolidated Financial Projections, if implemented, would be a decrease in earnings available for common stock and cashflow in 2020 as it relates to the payment to the general fund. Additionally, the proposed disallowed wildfire mitigation and system enhancement costs would impact earnings available for common stock primarily in 2020 and 2021, and cash flow impacts from the loss of anticipated revenue would be expected to impact future years. The modifications to the settlement proposed by the POD, if implemented, would also require any tax savings associated with the shareholder payments under the settlement agreement to be applied to wildfire mitigation expenses that would otherwise have been recovered from ratepayers when realized. The initial settlement of $1.675 billion and the additional $262 million established by the POD are assumed to be tax deductible and the resulting tax savings could be as much as $542 million based on the company’s 28% effective net tax rate. The realization of these tax savings depends on many other variables and the timing of any savings is expected after 2024.

• For wildfire-related programs, including wildfire-related inspections and maintenance costs, that are in addition to programs requested in the 2020 GRC Settlement, recovery of costs will be allowed by the CPUC through memorandum accounts and collected on a three-year lag.

• Recovery of incremental capital expenditures in 2020 and 2021 related to implementing microgrid-enabling distributed generation, consistent with its proposal for cost recovery authorization submitted to the CPUC in connection with the CPUC’s Order Instituting Rulemaking regarding microgrids.

• Pursuant to the requirements of Assembly Bill (“AB”) 1054, approximately $3.2 billion of fire risk mitigation capital expenditures will be excluded from the Utility’s equity rate base and will therefore not earn a return on equity. Such expenditures are assumed to be substantially incurred over the period from August 2019 through December 31, 2022 and are assumed to be funded with debt until securitization bond proceeds are received.

• On March 17, 2020, the Utility entered into a Plea Agreement and Settlement (the “Agreement”) with the People of the State of California, by and through the Butte County District Attorney’s office to resolve the criminal prosecution of the Utility in connection with the 2018 Camp fire. Pursuant to the Agreement, the Utility will be sentenced to pay the maximum total fine and penalty of approximately $3.5 million. The Agreement provides that no other or additional sentence will be imposed on the Utility in the criminal action in connection with the 2018 Camp fire. The Utility has also agreed to pay $500,000 to the Butte County District Attorney Environmental and Consumer Protection Fund to reimburse costs spent on the investigation of the 2018 Camp fire. Simultaneous with entry into the Agreement, but separate from such Agreement, the Utility has committed to spend up to $15 million over five years to provide water to Butte County residents impacted by damage to the Utility’s Miocene Canal caused by the 2018 Camp fire. The Debtors believe that the Utility will have sufficient cash and other financial resources to satisfy these commitments following emergence.

Assumptions Underlying Regulatory and Policy Projections The Consolidated Financial Projections assume:

• The Utility’s authorized Return on Equity will be 10.25% (as authorized through 2023 by the CPUC in its final decision issued December 19, 2019) throughout the Projection Period. The Consolidated Financial Projections also reflect a capital structure that is consistent with the terms of the Restructuring Support Agreement (the “Noteholder RSA”) dated January 22, 2020,


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resulting in a weighted-average cost of debt of approximately 4.3%2 upon PG&E Corporation’s and the Utility’s emergence from Chapter 11.

• Consistent with the terms of AB 1054, an initial contribution by the Utility to the Go-Forward Wildfire Fund established thereunder of $4.8 billion upon emergence, to be amortized over ten years and ongoing contributions by the Utility to the Go-Forward Wildfire Fund of $193 million per year over the Projection Period.

• The payment of various penalties by the Utility, including general fund payments, shareholder-paid initiatives, and agreements not to seek rate recovery for specified expenses pursuant to the following Orders Instituting Investigation (“OIIs”):

• Locate & Mark OII: In February 2020, the presiding officer in this OII issued a decision modifying the settlement agreement between the Utility and the CPUC submitted on October 3, 2019. Consistent with the terms of the settlement agreement, as modified, the Consolidated Financial Projections assume payments and unrecovered expenses by the Utility in the amount of $110 million during 2020-2022.

• Phase II Ex-Parte OII: On December 5th, 2019, the CPUC approved a settlement agreement between certain public entities and the Utility pursuant to which the Utility agreed to pay an incremental penalty of $10 million. The Consolidated Financial Projections assume that this penalty is paid in 2020.

• Wildfires OII: As described above, on December 17, 2019, the Utility submitted a settlement agreement to the CPUC in connection with the Wildfires OII in which it agreed not to seek cost recovery for $1.675 billion of wildfire-related expenditures. The Consolidated Financial Projections assume that these costs will not be recovered (See above for information related to the February 27, 2020 POD, which the Utility has appealed).

Financing Considerations

• The financing assumptions underlying the Consolidated Financial Projections are consistent with the Utility’s testimony filed with the CPUC on January 31, 2020 in connection with the CPUC’s Plan of Reorganization OII. The Consolidated Financial Projections assume total sources of funding and corresponding uses of approximately $59 billion ($57.65 billion upon emergence), as summarized in the following tables: Expected Sources (in millions) Equity issuance for cash $9,000 Equity issued into Fire Victim Trust (as defined below) 6,750 New PG&E Corporation Debt 4,750 Reinstated Utility Debt 9,575 New Utility Notes 23,775 Insurance Proceeds 2,200 Cash immediately prior to Emergence 1,600 Deferred Wildfire Claims Settlement 1,350 Total Sources $59,000

2 Inclusive of amortization of fees.


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Expected Uses (in millions) Payment to holders of wildfire-related claims $24,150 2017/2018 Wildfire Claims Settlement (Deferred Payment) 1,350 Contributions to Go-Forward Wildfire Fund pursuant to AB 1054 5,000 Repayment of Debtor-In-Possession Financing 2,000 Pre-petition Debt to be repaid or reinstated 22,180 Trade Claims and Other Costs 2,300 Accrued Interest 1,270 Cash immediately following Emergence 750 Total Uses $59,000

• The Consolidated Financial Projections assume, in connection with PG&E Corporation and the

Utility’s exit financing, that the CPUC will authorize the exclusion of $6 billion of temporary New Utility Notes from the Utility’s capital structure. The Consolidated Financial Projections further assume that the CPUC will authorize the securitization of $7.5 billion of wildfire-related claims costs by March 31, 2021 that is contemplated to be neutral on average to customers, the proceeds of which will be used to retire the $6 billion of temporary New Utility Notes and to make payments as part of the $1.35 billion deferred settlement to the trust to be established under the Plan for the benefit of holders of wildfire-related claims (“Fire Victim Trust”). The authorization to securitize $7.5 billion of wildfire claims results in a $1.9 billion charge at inception as a result of an undiscounted regulatory liability associated with revenue credits funded by the NOL monetization. The Securitization includes offsetting credits to be funded initially from a shareholder funded reserve account and further funded with the value of shareholder NOLs contributed in the year in which the NOLs are utilized. The combination of the up-front contributions to the reserve account and the monetization of the NOLs are expected to yield a full (nominal) offset each year to securitized charges. Net operating revenues are shown net of contributions to the reserve account in the year in which contributions are made. The Securitization proposal reflected in the forecast includes contribution to the reserve account of $1.8 billion in 2021 that are not funded by NOL monetization. The reserve account is not reflected on the Debtors’ balance sheet.

• The Consolidated Financial Projections assume that the equity commitment premium due under the equity backstop letters will equal 119 million shares of PG&E Corporation common stock, payable on the Effective Date. Assuming that the Debtors implement the capital structure described above by drawing on the equity backstop commitments and based on the Debtors’ forecasted Normalized Estimated Net Income (as defined in the equity backstop commitment letters), the value of the equity commitment premium would be approximately $1.2 billion at the Backstop Price (as defined in the equity backstop commitment letters) without adjustments related to changes in the Applicable Utility Index Multiple. The value of the equity commitment premium could exceed this amount in the event that PG&E Corporation successfully consummates a marketed equity offering or rights offering in lieu of drawing on the equity backstop commitments or if the Debtors implement an alternative capital structure, under certain conditions.

• The Consolidated Financial Projections assume that the Debtors will face no incremental wildfire liabilities related to pre-petition wildfires beyond the $25.5 billion of wildfire-related claims that the Debtors have committed as of the date hereof to pay under the Plan pursuant to various settlement agreements with the holders of wildfire-related claims. The Consolidated Financial Projections further assume the Debtors will not face any liabilities related to postpetition wildfires that are not covered by insurance.


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• Common dividends will not be paid until PG&E Corporation has recognized $6.2 billion in Non-GAAP Core Earnings following the Effective Date. That amount would be deployed as capital investment or reduction in debt. Common dividends are assumed to be restored once the Non-GAAP Core Earnings threshold has been met and are moderated to allow PG&E Corporation debt reduction. This assumption does not reflect a commitment on the Board or management's part to a specific future dividend policy.

• The Consolidated Financial Projections assume that additional equity is raised in 2021. This financing need may either be met through equity issuance or maintaining Holding Company debt levels.


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PG&E Corporation ConsolidatedCONDENSED CONSOLIDATED PROJECTED INCOME STATEMENTS

($ millions)

2020 2021 2022 2023 2024INCOME STATEMENT

Net Operating Revenues 15,512 14,649 17,170 18,163 18,925Memo: Total Cost of Energy 3,400 3,716 3,684 3,450 3,490

Operating Expenses

Operating and maintenance (8,807) (8,869) (8,700) (8,921) (8,972)Depreciation, amort. & decommissioning (3,444) (3,693) (3,916) (4,229) (4,510)Net securitization regulatory deferral (144) (89) (91) (84)

Total Operating Expenses (12,251) (12,706) (12,705) (13,241) (13,565)

Operating Income 3,261 1,943 4,465 4,922 5,360

Total Interest Expense (1,296) (1,683) (1,766) (1,835) (1,891)

State Wildfire Insurance Fund Contribution and Prepayment Amortization (672) (672) (672) (672) (672)

Other Income/(Expense), net (1,479) (166) (166) (180) (193)

Income Before Income Taxes (186) (578) 1,861 2,235 2,604

Income tax provision 232 721 17 (82) (196)

Preferred dividend requirement (14) (14) (14) (14) (14)

TOTAL EARNINGS AVAIL FOR COMMON STOCK 32 129 1,864 2,139 2,394

Non-GAAP Core Earnings AdjustmentsBankruptcy and Legal Costs 1,487 28Investigation Remedies and Delayed Cost Recovery 110 42 48GT&S Capital Audit (191)Amortization of Wildfire Insurance Fund Contribution 484 484 484 484 484Net Securitization Inception Charge 1,361

NON-GAAP CORE EARNINGS 1,922 2,044 2,395 2,623 2,878

Forecasted 2021 Normalized Estimated Net Income (“NENI”), as defined in the Backstop Commitment Letter filed with the SEC on December 26, 2019, excludes the following items that are otherwise included in the presentation of forecasted 2021 Core Earnings: approximately $55 million related to unrecoverable Gas Transmission and Storage costs, approximately $45 million related to delayed capital recovery and approximately $20 million of earnings below authorized amounts. In addition to the adjustments referenced above, NENI includes the post-tax annual contribution to the Go-Forward Wildfire Fund, which is excluded from Core Earnings.


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PG&E Corporation ConsolidatedCONDENSED CONSOLIDATED PROJECTED BALANCE SHEETS

($ millions)

2020 2021 2022 2023 2024ASSETSCurrent Assets

Cash and Cash Equivalents 757 504 491 471 428Accounts Receivable 2,788 2,721 2,937 3,166 3,283Regulatory Balancing Accounts, net of Liabilities (1) 747 1,619 1,677 1,040 743Prepaid Expenses, Inventories and Collateral 1,742 1,836 1,920 1,993 2,057

Total Current Assets 6,035 6,679 7,024 6,670 6,511

Net Property, Plant and Equipment 66,340 71,347 75,809 80,991 85,277

Other Noncurrent AssetsNuclear Decommissioning Assets 3,291 3,409 3,527 3,645 3,763Wildfire Fund Contribution 4,320 3,840 3,360 2,880 2,400Regulatory Assets and Other 8,804 8,551 8,343 8,372 8,568

Total Other Noncurrent Assets 16,415 15,800 15,230 14,897 14,730

TOTAL ASSETS 88,790 93,826 98,064 102,558 106,519

LIABILITIES AND SHAREHOLDERS' EQUITYCurrent Liabilities

Accounts Payable 2,152 2,140 2,063 2,005 1,986Short Term Borrowing 1,720 2,000 2,000 2,000 2,000Other Current Liabilities 1,648 1,853 1,631 1,421 1,350Accrued Wildfire Liability (Gross) 1,350 0 0 0 0

Total Current Liabilities 6,870 5,992 5,694 5,426 5,336

Noncurrent Liabilities

Deferred Income Taxes (320) (1,041) (1,069) (996) (811)Long-term debt 37,843 34,238 35,253 36,253 36,441

Memo: HoldCo Portion of Long Term Debt 4,750 3,025 2,425 2,250 1,650

Securitized bonds 0 8,218 8,873 9,495 9,992Regulatory Liabilities 9,716 10,311 10,942 11,804 12,736Asset Retirement Obligations 6,002 6,161 6,320 6,320 6,320Other 6,099 6,086 6,328 6,673 7,005

Total Noncurrent Liabilities 59,340 63,975 66,647 69,550 71,683

Shareholders' EquityTotal Shareholders' Equity 22,328 23,607 25,470 27,329 29,248Noncontrolling Interest - Preferred Stock of Subsidiary 252 252 252 252 252

Total Shareholders' Equity 22,580 23,859 25,722 27,581 29,500

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 88,790 93,826 98,064 102,558 106,519

(1)Includes accounts classified as noncurrent in GAAP financial statements


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PG&E Corporation Consolidated

CONDENSED CONSOLIDATED PROJECTED STATEMENTS OF CASH FLOWS($ millions)

2020 2021 2022 2023 2024CASH FLOW STATEMENTCash Flows From Operations:

Net Income 46 143 1,878 2,153 2,408

Depreciation and Amortization 3,439 3,683 3,907 4,219 4,500Net Amortization of Securitization Regulatory Assets and Liabilities (1,746) 89 91 84Share-Based Equity Backstop Commitment Premium 1,222Wildfire Insurance Fund Amortization 480 480 480 480 480Wildfire Insurance Fund Contribution (4,800)Change in Deferred Taxes (232) (721) (28) 73 184Changes in Operating Assets and Liabilities 52 192 (374) (340) (208)Change in Balancing Accounts and Regulatory Assets (221) 1,205 125 815 479Other Noncurrent Assets and Liabilities 110 42 39 55 25Change in Other Working Capital 155 50 68 (71) (57)Payment of Liabilities Subject to Compromise, net of Insurance Proceeds (25,547) (1,350)Net Cash from Operations (25,295) 1,978 6,183 7,474 7,896

Investing Activities:Capital Expenditures (8,086) (8,140) (7,730) (8,702) (8,015)Net Change in Nuclear Decommissioning Funds (118) (118) (118) (118) (118)Proceeds from Asset Sales 1,322 0 0 0 0Net Cash Used In Investing (6,882) (8,258) (7,848) (8,820) (8,133)

Financing Activities:Holding Company Financing 19,850 (575) (600) (175) (600)Short and Long Term Utility Debt Issued (Matured/Repurchased) 11,552 (1,603) 1,612 1,172 784Securitization Bonds Issued 0 8,218 654 622 497Preferred Dividends Disbursed (42) (14) (14) (14) (14)Common dividends 0 0 0 (280) (475)Net Cash Provided by Financing 31,360 6,026 1,652 1,326 193

NET CHANGE IN CASH (817) (253) (13) (19) (43)


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